What if you will not have to pay tax? It will not only allow you to spend some time and money on you, but you can also save your money in your account with less bureaucracy.
Your earned money will not disappear within just a few minutes from your account on the name of income tax.
In this article, we will discuss how to save and transfer your money by choosing the right country to live in as a permanent residence and how to set up your company anywhere in the world.
It is not so easy to escape your taxes directly in a country where you have a burden of the high tax. It might be possible if you know the 183-day rule and by transferring your tax residence abroad. By this way, you can easily able to avoid taxes totally legally and you can also escape the obligations imposed by your State.
By applying the 183-day rule you ca free up yourself from income tax which will give you these benefits:
- Money for enjoyment: By saving your money from the tax you can enjoy your life spending money according to the needs.
- Invest your money: you have the option of investing your money in a profitable business or company.
- Free from the legal responsibilities: you will feel free with all the issues of filling the tax form and wasting your time in the government offices.
What is the 183-day rule?
According to the 183-day rule, If you live in a country for more than a half year than you are liable to pay the taxes of that country. It is a condition you have must have to comply with at the time of paying the taxes and for neglecting your tax you have to follow some more general points.
What is the difference between domicile and residence?
There is a vital connection of taxation with these two terms, it is important to understand that either you are a domicile or resident of a country. Let’s get deeper in these terms understanding more about them.
What is the term domicile?
Domicile is the country in which the person is living permanently and has a deeper contact with it. At the time of your birth, the country in which your parents are living is recognised as your domicile of origin. In case if your parents are not married then your mother’s domicile is considered as your domicile.
Your origin domicile will continue until you will not obtain a new domicile.
Importance of Domicile
Domicile is very important at the time of regulating your tax liabilities, its importance is determined in three main areas: your income tax, capital gains tax and inheritance tax. If you want to be an owner of the property or financial assets in any foreign countries than your domicile is important for proving your assets in another country. The real estate of domicile will declare the value of assets you hold in the foreign country as well in your home country.
The concept of deemed domicile is applicable to the British Expats who live abroad, deemed domicile is important at the time of calculating your inheritance tax on your estate when you die. It generally means that if you are a non-dom of the UK under the law of HMRC than you will be treated as domiciled of UK at the time of transferring your residency in the following conditions:
- You are domiciled in the UK within the time period of three years before the transfer.
- You are living in the UK from past 17 taxable years ending with the year in which you make a transfer.
Domicile of choice-changing your Domicile
If you had exceeded 16 years of your life span than you are eligible to change your domicile. In order to do this, you have to follow many criteria and prove each of them with evidence. The criteria for changing your domicile are different and will be monitored on its merit and the evidence with it. The basic criteria for changing your domicile includes the following:
- You have to be settled in another country leaving the domiciled country.
- Put forward the strong evidence that you intend to live in your new location permanently.
non-UK domiciles (non-doms) living in the UK
According to an estimation around five-million non-doms living in the UK, which gives many tax advantages even if you are a tax- resident there. There are a large group of people who claim themselves non-dom just to take advantage of tax benefits.
If you are living in a country for more than 183 days than you will be considered as a resident of that country. This rule is applicable to individuals living in the UK or living anywhere in the world. Along with this if you working in abroad for than a year, you will not have to come back in the UK for more than 91 days, on average, in any 365 day period for the duration of your time abroad.
If you come back in the country because of some unwanted reasons than the HMRC will take it as an exception, you just have to prove that you exceeded the limit through no fault of your own.
To determine your tax residence status in a country there is a serious test named as the Statutory Residence Test.
To become an ordinary resident of a country you have to spend your major time in the same country every year avoiding the abroad trips.
The ordinary resident is those who are travels overseas for a period of time including a full taxation year.
There is a rule of exit tax in some of the countries at the time of transferring your tax residence and cease to be domiciled.
This tax is levied on the big fortunes who should have to pay tax on their capital gains that would rose at the time living the country after selling all your assets.
The life of an eternal tourist: never pay taxes again
If you want to live a tax-free life then deregister yourself from the country and cut all of your knots in the country.by doing this you will have to make sure that you will breach the 183-day rule and making your past living country the centre of your interests.
To enjoy this eternal or perpetual tourist status you have to comply with a tourist visa in other countries, and by not living more than 6 months in the country.
This perpetual tourist status has some disadvantages which are:
- Tourist visa: you have to make your trips quicker because the tourist visa is valid for only 6 months of time.
- Bank accounts: it is impossible to open a bank account by moving here and there because you will need some of the documents like the electricity bill of the house which you will not have. So it will become a wise decision to open a bank account before starting your life as a tourist.
- Companies: it is quite difficult to register a company in a country without a fix residence. So make sure to set your company before moving anywhere in the world.
- Right to vote: you will lose your right to vote because you will not be considered as a citizen of any country.
- Official documents: To seek your necessary documents like a passport you have to sign up to the Consular Register.
- Insurance: you can opt for international health insurance.
You can become a resident in more than one country at a time if you are spending your time according to the rules and regulations of both the countries, the major drawback of this is if you will not manage them both you will have to pay the tax twice.
The difference between domicile and residency
There are two concepts of domicile, the first one is where you live permanently and the second one is your domicile of origin which is your parents’ permanent residence.
The domicile and residents will become together for some tax purposes. Like a mix of residency, ordinary residence, domicile and domicile of origin are a matter of difference to the amount of taxation of your payment
How to solve the conflicts between tax residencies in different states?
What you think, how will you become the tax residents in two different states? Generally, you will answer this saying ‘spending more than the minimum time in the country from which you will become a taxpayer”, or you will say “holding property in more than one county.
For avoiding the double taxation in countries there are treaties which stipulates you to pay the taxes in one place or another.
In general, the following is stipulated in DTTs:
- The individual is considered to be a tax resident of the state in which he has a permanent house in case disputes occur between two countries on the matter of tax residence of individuals.
- In the condition of owing permanent house in both the country, the strongest personal and economic ties will be taken into account.
- The place where you spent most of your time by not exceeding 183 days will be considered as your tax residence.
- If you are not able to decide where you have spent most of your time, your nationality is considered in both these countries.
- If you do not have the nationality in both the countries than you have to reach an agreement.
Just make clear one thing that, in order for the DTT to apply, you must be a tax resident of the country, it is not enough to have a residence permit.
You are not liable to become a tax resident of a country where you own the residency but do not live there for a single day and the above rules will not apply to you.